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HomeTop NewsCBN To Stop Paying Interest On Banks Excess Deposit At Its Window

CBN To Stop Paying Interest On Banks Excess Deposit At Its Window

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In its bid to encourage banks to lend to the productive sectors of the economy, the Central Bank of Nigeria (CBN) on Wednesday said it will no longer pay interest of commercial lender’s deposits in excess of 2 billion naira.

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In a circular to banks and Discount Houses, the CBN said “the remunerable daily placement by banks at the Standing Deposit Facility (SDF) shall not exceed 2 billion naira.
It said deposit of 2 billion naira placement in the SDF window shall attract interest rate as prescribed by the Monetary Policy Committee (MPC) from time to time.
“Any deposit by a bank in excess of 2 billion shall not be remunerated,” the CBN said in the circular entitled “Guideline on Accessing the CBN Standing Deposit Facility.”
The regulatory bank had issued a circular last week directing banks to lend 60 percent of their liquid assets to specific sectors of the economy by September 30, 2019, in a bid to stimulate growth and boost production in the economy.
In the July 4 circular, the apex bank instructed that banks that failed to lend 60 percent of their Loan to Deposit Ratio (LDR) to the productive sector would be penalised.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserves Requirement equal to 50% of the lending shortfall of the target LDR,” the CBN said in its July 4 circular.
Nigerian banks are averse to lending to the productive sectors of the economy due to high rates of default and Non-Performing Loans (NPLs) in the industry.
A CBN report stated that banks invest over 70 percent of their liquid assets in treasury bills and other government debt instrument.
Before the released on the latest circular, the regulatory bank pays 8.5 percent on banks placement at the SDF, while it charges banks 15.5 percent on short term borrowing on the Standing Lending Facility (SLF).
The regulatory bank had already threatened to stop banks from investing their liquid assets in government treasuries as part of measure to discourage them from shunning their intermediation roles.

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